US jobless claims improvement helps European stocks pare losses, Wall Street set to open up

US jobless improvement buoys world markets

LONDON — European stock markets recovered most of their losses Thursday and Wall Street futures turned higher following the unexpected news that continuing U.S. jobless claims fell in the last week by the largest amount in seven years — a signal that the world’s largest economy may be on the mend.

By early afternoon London time, the FTSE 100 index of leading British shares was down only 15.05 points, or 0.4 percent, at 4,263.41 while France’s CAC-40 index rose 5.08 points, or 0.2 percent, to 3,166.22. Germany’s DAX was trading 6.14 points, or 0.1 percent, higher at 4,806.12.

Wall Street was poised for modest gains at the open. Dow futures rose 23 points, or 0.3 percent, to 8,460 while the broader Standard & Poor’s 500 futures were 2.5 points, or 0.3 percent, higher at 907.80.

Earlier, Europe’s main markets had been trading even lower and Wall Street futures were pointing to a lower opening. The turnaround came after the U.S. Labor Department revealed that the total unemployment insurance rolls fell by 148,000 to 6.69 million, the first drop since January and a sign that layoffs are easing.

“The U.S. is moving in the right direction; it’s not massive but enough to give one confidence that the actions by government and the central bank are working,” said Howard Wheeldon, senior strategist at BGC Partners.

The stock market rally since March had been fueled by hopes that the U.S. economy will recover from recession sooner than anticipated. As equities usually start rising 6 to 9 months before actual recovery emerges in the official data, this suggests investors believed the massive sell-off in markets during the most acute phase of the financial crisis was overdone. Some of the world’s major equity indexes are now in positive territory for 2009.

That optimism has dissipated in recent days, and analysts say investors need clearer evidence that the world economy and company earnings are recovering so that current stock valuations make sense. In March, many investors saw valuations around the world as particularly cheap and started buying into the market.

Earlier, investors in Europe and Asia had worried that a global economic recovery later this year — the main driver behind the rally since March — could be choked off at birth by rising interest rates and oil prices.

Interest rates, particularly on U.S. government bonds have been rising steadily over recent weeks on expectations that the U.S. Federal Reserve will raise borrowing costs sooner than previously anticipated. Meanwhile, oil prices have more than doubled over the past couple of months on hopes that a global economic rebound will boost demand for crude.

“Some justification for equity gains is evident from less negative economic data, but going forward less negative news will not maintain positive momentum — instead, it will need positive as opposed to less negative to keep the rally going and it is difficult to see where this will come from,” said Mitul Kotecha, an analyst at Calyon Credit Agricole.

Earlier in Asia, Japan’s benchmark Nikkei 225 stock average fell 137.13 points, or 1.4 percent, to 9,703.72, and Hong Kong’s Hang Seng dropped 307.94, or 1.7 percent, to 17,776.66.

Elsewhere in Asia, South Korea’s Kospi lost 1.1 percent, while Australia’s key index was down 0.3 percent and Taiwan’s benchmark pulled back 0.8 percent.

But Shanghai shares defied the losses, with the benchmark climbing 1.6 percent to a 10-month high, as the World Bank raised its China 2009 economic growth forecast from 6.5 percent to 7.2 percent and the country’s premier said the economy was showing “positive changes.”

The World Bank said Beijing’s stimulus-driven investment boom would help shield the world’s third-largest economy from the downturn, but cautioned it was too soon to say a sustained recovery was on the way.

China’s ability to prosper as overseas economies slump has been a popular theme among investors, helping drive mainland and Hong Kong shares — as well as certain commodities — to huge gains in recent months.

Oil prices lingered near $71 a barrel Thursday, with benchmark crude for July delivery down 15 cents at $70.88 a barrel.

The dollar was up 0.3 percent at 96.17 while the euro declined 0.3 percent to $1.3935.

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AP Business Writer Jeremiah Marquez in Hong Kong contributed to this report.